Verizon Wireless 2010 Annual Report Download - page 38

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Management’sDiscussionandAnalysis
ofFinancialConditionandResultsofOperations – As Adjusted continued
OTHER FACTORS THAT MAY AFFECT FUTURE RESULTS
Acquisitions and Divestitures
Terremark Worldwide, Inc.
On January 27, 2011, Verizon announced that it had entered into a
definitive agreement to acquire all of the common stock of Terremark
Worldwide, Inc., a global provider of IT infrastructure and cloud ser-
vices, for $19 per share in cash (or approximately $1.4 billion). Terremark
had approximately $0.5 billion of debt outstanding as of December 31,
2010. The acquisition, which is subject to the satisfaction of conditions,
including the receipt of a regulatory approval, is expected to close in the
firstquarterof2011.TheacquisitionwillenhanceVerizon’sofferingsto
governmental and large enterprise customers.
Access Lines Spin-offs
Frontier Transaction
On May 13, 2009, we announced plans to spin off a newly formed sub-
sidiary of Verizon (Spinco) to our stockholders and for Spinco to merge
with Frontier immediately following the spin-off pursuant to a definitive
agreement with Frontier, with Frontier to be the surviving corporation.
On July 1, 2010, after receiving regulatory approval, we completed the
spin-off of the shares of Spinco to Verizon stockholders and the merger of
Spinco with Frontier, resulting in Verizon stockholders collectively owning
approximately68percentofFrontier’sequitywhichwasoutstanding
immediately following the merger. Frontier issued approximately 678.5
million shares of Frontier common stock in the aggregate to Verizon
stockholders in the merger, and Verizon stockholders received one share
of Frontier common stock for every 4.165977 shares of Verizon common
stock they owned as of June 7, 2010. Verizon stockholders received cash
in lieu of any fraction of a share of Frontier common stock to which they
otherwise were entitled.
At the time of the spin-off and the merger, Spinco held defined assets
and liabilities of the local exchange business and related landline activi-
ties of Verizon in Arizona, Idaho, Illinois, Indiana, Michigan, Nevada,
North Carolina, Ohio, Oregon, South Carolina, Washington, West Virginia
and Wisconsin, and in portions of California bordering Arizona, Nevada
and Oregon, including Internet access and long distance services and
broadband video provided to designated customers in those areas. The
transactions did not involve any assets or liabilities of Verizon Wireless.
The merger resulted in Frontier acquiring approximately 4 million access
lines and certain related businesses from Verizon, which collectively
generatedrevenuesofapproximately$4billionforVerizon’sWirelineseg-
mentduring2009andapproximately$1.7billionofrevenueforVerizon’s
Wireline segment during the six months ended June 30, 2010.
PursuanttothetermsofVerizon’sequityincentiveplans,shortlyfollowing
the closing of the spin-off and the merger, the number of outstanding
andunvestedrestrictedstockunits(RSUs)andperformancestockunits
(PSUs) held by current and former Verizon employees (including Verizon
employees who became employees of Frontier in connection with the
merger) was increased to reflect a number of additional units approxi-
mately equal to the cash value of the Frontier common stock that the
holdersoftheRSUsandPSUswouldhavereceivedwithrespecttohypo-
thetical shares of Verizon common stock subject to awards under those
plans. In addition, the exercise prices and number of shares of Verizon
common stock underlying stock options to purchase shares of Verizon
common stock previously granted to employees under equity incentive
plans were adjusted pursuant to the terms of those plans to take into
account the decrease in the value of Verizon common stock immediately
following the spin-off and merger.
The total value of the transaction to Verizon and its stockholders was
approximately $8.6 billion. Verizon stockholders received $5.3 billion in
Frontier common stock (based on the valuation formula contained in
the merger agreement with Frontier) as described above, and Verizon
received $3.3 billion in aggregate value, comprised of $3.1 billion in the
form of a special cash payment from Spinco and $0.3 billion in a reduction
inVerizon’sconsolidatedindebtedness.DuringJuly2010,Verizonused
the proceeds from the special cash payment to reduce its consolidated
indebtedness. The accompanying consolidated financial statements for
the year ended December 31, 2010 include these operations prior to
the completion of the spin-off on July 1, 2010. The spin-off decreased
Total equity and Goodwill by approximately $1.9 billion and $0.6 billion,
respectively.
On April 12, 2010, Spinco completed a financing of $3.2 billion in prin-
cipal amount of notes. The gross proceeds of the offering were deposited
into an escrow account. Immediately prior to the spin-off on July 1, 2010,
the funds in the escrow account representing the net cash proceeds
from the offering were released to Verizon. These proceeds are reflected
in the consolidated statement of cash flows as Proceeds from access line
spin-off.
FairPoint Transaction
On March 31, 2008, we completed the spin-off of the shares of Northern
New England Spinco Inc. to Verizon shareowners and the merger of
Northern New England Spinco Inc. with FairPoint Communications, Inc.
As a result of the spin-off, our net debt was reduced by approximately
$1.4 billion. The consolidated statements of income for the periods pre-
sented include the results of operations of the local exchange and related
business assets in Maine, New Hampshire and Vermont through the date
of completion of the spin-off.
Alltel Divestiture Markets
As a condition of the regulatory approvals by the DOJ and the FCC to
complete the acquisition of Alltel in January 2009, Verizon Wireless was
required to divest overlapping properties in 105 operating markets in
24 states. Total assets and total liabilities divested were $2.6 billion and
$0.1 billion, respectively, principally comprised of network assets, wire-
less licenses and customer relationships that were included in Prepaid
expenses and other current assets and Other current liabilities, respec-
tively, on the consolidated balance sheet at December 31, 2009.
On May 8, 2009, Verizon Wireless entered into a definitive agreement
with AT&T Mobility, pursuant to which AT&T Mobility agreed to acquire
79 of the 105 Alltel Divestiture Markets, including licenses and network
assets, for approximately $2.4 billion in cash. On June 9, 2009, Verizon
Wireless entered into a definitive agreement with Atlantic Tele-Network,
Inc. (ATN), pursuant to which ATN agreed to acquire the remaining 26
Alltel Divestiture Markets, including licenses and network assets, for $0.2
billion in cash. During the second quarter of 2010, Verizon Wireless com-
pleted both transactions.
Other
On August 23, 2010, Verizon Wireless acquired the net assets and related
customers of six operating markets in Louisiana and Mississippi in a trans-
action with AT&T Inc. for cash consideration of $0.2 billion. These assets
wereacquiredtoenhanceVerizonWireless’networkcoverageinthese
operating markets. The preliminary purchase price allocation primarily
resulted in $0.1 billion of wireless licenses and $0.1 billion in goodwill.